FA – May 2012 – L1 – SA – Q31 – Depreciation Methods and Accounting for Disposals

Calculating the depreciation using the sum-of-the-years’ digits method.

Question

An asset has a useful life span of 5 years with no residual value. Using the sum-of-the-years’ digits method of depreciation, what proportion of the asset cost will have been written-off at the end of year 3?

Answer

4/5 or 0.8 or 80%
Explanation:
The sum-of-the-years’ digits method involves summing the digits of the asset’s useful life (5+4+3+2+1 = 15). In year 3, the depreciation will be based on the first three years’ fractions: (5+4+3)/15, which totals 12/15 or 80% of the asset’s cost. Therefore, the correct answer is 80%.

Tags: Asset Accounting, Depreciation, Sum-of-the-Years-Digits
Level: Level 1

Topic: Depreciation Methods and Accounting for Disposals
Series: MAY 2012

Uploader: Theophilus